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Non-conforming loans are mortgages that aren't eligible for sale to Fannie Mae and Freddie Mac, the two government-sponsored enterprises that back much of the U.S. mortgage market.
A non-conforming loan is a loan that fails to meet bank criteria for funding. Reasons include the loan amount is higher than the conforming loan limit (for mortgage loans), lack of sufficient credit , the unorthodox nature of the use of funds, or the collateral backing it.
For example, North American Savings Bank‘s website features a portfolio loan that requires a 20 percent down payment (vs. 3 to 10 percent for conventional loans), a debt-to-income ratio of up to ...
The conforming loan limit for Fannie Mae, along with Freddie Mac, is set by Office of Federal Housing Enterprise Oversight (OFHEO), the regulator of both GSEs. OFHEO annually sets the limit of the size of a conforming loan based on the October to October changes in mean home price, above which a mortgage is considered a non-conforming jumbo loan.
Whether or not a loan is conforming depends on the size and set of guidelines which are implemented in an automated underwriting system. [1] Non-conforming mortgage loans which cannot be sold to Fannie or Freddie are either "jumbo" or "subprime", and can also be packaged into mortgage-backed securities. Some companies, called correspondent ...
Both conforming loans and conventional loans refer to private (non-government) and commercial mortgage loans. And their meanings overlap. But “ conventional loan ” is a broader category.
This is because both Fannie Mae and Freddie Mac only buy loans that are conforming, to repackage into the secondary market, making the demand for a non-conforming loan much less. By virtue of the laws of supply and demand, then, it is harder for lenders to sell the loans, thus it would cost more to the consumers (typically 1/4 to 1/2 of a percent.)
Today, Ginnie Mae securities are the only mortgage-backed securities that are backed by the "full faith and credit" guaranty of the United States government, although some have argued that Fannie Mae and Freddie Mac securities are de facto or "effective" beneficiaries of this guarantee after the US government rescued them from insolvency in ...